History of Insurance Adjusting, Part 2: The Middle Ages

In the days of the Roman Empire, which stretched from North Africa and the Middle East to Scotland—the Romans hadn’t quite subdued those Norsemen yet—trade and commerce could travel the Roman roads in relative safety, although piracy was still common on the Aegean and Mediterranean Seas, and insurance contracts often were taken out on shipments, depending on the quality of the vessel.

The Justinian Code (Corpus Juris Civilis Iustinianus) included the earlier Rhodian law of jettison, that when some goods had to be thrown overboard to save the vessel, those whose goods survived shared in the loss on the basis of the general average value of what was sacrificed.

Remember that little phrase in the family auto policy of the 1960s about paying “general average”? To many of us it was a mysterious phrase, but it meant that if the insured auto was on a ferryboat and other vehicles had be jettisoned to save the vessel, the FAP would pay the “general average” loss assessed to those whose vehicles were saved.

The closest today’s personal auto policy comes to such coverage is the physical damage provision for “expenses for which you become legally responsible in the event of loss to a ‘non-owned auto,’” but only if the insured has “other than ‘collision’ coverage” on an owned automobile. Considering that there is “no benefit to [a] bailee” or common carrier, this is far removed from the jettison theory of general average.

The Rise of the Insurance Guilds

“The dissolution of the Roman Empire, about the 5th Century A.D., brought repeated invasions by Barbarians from the north and by Moors and pirates from North Africa, and resulted in the disruption of trade and commerce in the Mediterranean World,” wrote Humbert O. Nelli, a historian and professor in the Department of Insurance at Georgia State University in Atlanta in the June, 1976, issue of the CPCU Annals. “The growth of Christianity with its abhorrence of usury further handicapped trade and banking. In the period between the fall of Rome and the rise of the Italian city-states, about the 12th century A.D., the void was partially filled by Jewish itinerant peddlers and money lenders and by Jewish merchants who filtered in fromByzantium andNorth Africa where they were actively engaged in commerce.”

It may have been Scandinavian and Germanic gildas (guilds) that began to take the place of the Roman collegia of merchant shippers, providing primarily fraternal benefits and burial duties of the older Roman and Greek societies, Nelli suggests. But it was the Italian city-states that gave rise to the capitalistic commerce in the 12th and 13th centuries. Marco Polo ofVenice had traveled east, and the Silk Road was opening trade with the Orient. Medieval crusades made European kingdoms aware of the wealth of the East, and there is some indication that it was the financing of pilgrims’ travel to the Holy Land that gave the Knights Templar their wealth.

Risk Management in Medieval Europe

The feudal system common throughoutEuropein the Middle Ages was a class system, but it lacked a middle class. There was the aristocracy—royalty, knights and high positions in the church—and there were the serfs, the yeomen, sailors and peasants who served them from birth to death. When a king wanted a war, he called on his noblemen to provide the soldiers, and the serfs took up their pitchforks and spikes or bows and arrows and battled to the death. Unlike the well-trained and disciplined Roman Armies of earlier centuries, peasant armies just did as they were told. If wounded, they died. Livestock fared better. Mutual insurance on cattle was sold in Flanders as early as 1250.

Which is not to say that there were no hospitals; learning and writing was maintained by monasteries and universities. Universities practiced which might be called medicine, adapting knowledge from the Greeks who had learned under Hippocrates. Many monks learned the healing arts as well, and every great city, from Paris and Bologna to Oxford and Cambridge had universities teaching a variety of sciences, including medicine. However, the science of risk was not generally among the subjects taught.

The idea of risk management was the same as in times before the Roman Empire: Build your city on a hilltop, and fortify it with a wall. As long as Joshua didn’t show up with that trumpet of his that blew down the walls ofJericho, the city might escape invasions by an enemy army or a dread disease. With noblemen fighting each other for territory and the Italian city-states constantly at war with each other, it was clear then, as now, that war was an uninsurable peril. Many war widows and orphans spent their days in convents or monasteries, their only place of any refuge and survival.

So, who were the medieval adjusters? Most likely it was the traveling friars. When a Franciscan friar came to town everyone flocked to confession, for the penances they imposed were reasonable and helpful. It is no accident that in Walter Scott’s Ivanhoe it was a traveling friar who took a starring role. While there may or may not have been a real “Robin Hood,” there were certainly a few jolly Friar Tucks about the land serving the poor and doing their best to teach the illiterates how to read. Some of the top scholars in medieval universities such as the Franciscan Duns Scotus in Paris reintroduced Aristotelian thinking back into the early 14th century, perhaps leading to the Renaissance.

Still, it was not until the 14th century that an insurance contract per se arose. “To protect themselves against fortuitous loss of their goods and ships and still evade the provisions of the usury laws and the prohibitions of a powerful church, the merchants had to engage in subterfuge and use fictitious language in their contracts of insurance,” Professor Nelli explains. Some records show that burglary insurance was also available.

“Many modern insurance writers have accepted [one historian’s] statement that the first true insurance contract is dated October 23, 1347,” notes Nelli, “and [that it was] recorded in theGenoaArchives. Recently, however, an earlier contract, dating from February 13, 1343, has been found.” Such records of marine insurance were primarily from the notaries of the city republics, mostly those on the east or west coasts ofItaly. Christopher Columbus came fromGenoa; perhaps the Spanish royalty that financed his westbound search forIndiapurchased insurance on the tiny fleet to hedge their bets.

By Land or Sea

The Renaissance was not limited to Florence and the Italian city-states; in Paris Abbot Suger (Soo-jay) of Ste. Denis (San-Da-nee) improved on Romanesque architecture by opening the walls to light by using buttresses to support the walls and roofs of his abbey, causing Bernard of Clairvaux to declare it “an invasion of the Goths!” So Gothic it became, and the concept was adapted all over Europe. Yet commerce inEurope had one major problem: The Alps. There were a few mountain passes, so traveling merchants were limited primarily to either old Roman roads or rivers, the Seine, the Rhone, the Danube and theRhine.

As the Italian concept of insurance guilds moved north, the notion of contracts for loss of goods to natural or man-made perils traveled with them. Consider, for example, the expanse of the Hanseatic League fromGermanyintoScandinavia. While Christian missionaries had perhaps tamed the Norse Vikings, they still remained the primary sailors of the North, just as the Venetians had been of the Mediterranean andAegean. But there were new threats by the close of the Dark Ages.

One was the Black Death that depleted Europe’s population. Another was the Islamic invasions and the fall of Byzantium to the caliphs. Travel was a major endeavor. Many who set out on pilgrimages to holy places never made it. Thus one of the main items of trade became religious relics: if pilgrims couldn’t get to a holy place, holy objects came to them.

The Impact of Religion on Trade

It was not only food and trade goods that became the merchandise of the late Middle Ages, but also religious beliefs. Yet, even for a world without modern transport and communication new religious ideas and orders spread quickly. Giovanni Bernadone (of Assisi) had barely received permission from Pope Innocent III (the same pope who almost claimed England from Prince John while his brother, King Richard, was imprisoned and awaiting ransom, leading to the creation of the Magna Carta and parliamentary law) to form his Order of Friars Minor than the Franciscans had spread all over Europe.

When an Augustinian theology professor in Wittenberg, Martin Luther, posted his 95 arguments against the Church in 1517 on the church door for debate, he set off a war between Catholics and Protestants that tore Europe apart, and still blazes in certain corners of it. What the Reformation did to commerce is another story, but it certainly had an effect on the sale of relics and indulgences used by Rome to finance Vatican construction and artistic projects.

The concepts of insurance had spread by this time to England, and with the discovery of the New World across the Atlantic and new routes to Asia around the Cape of Good Hope in Africa, maritime commerce was “off and running.” It had a new triangular pattern for British, French, Dutch and Spanish traders: Northern ports toSenegaland other African ports for slaves, then hauling the slaves to South American, the Caribbean or North America using the Easterly Trade Winds, and returning to Europe via the Westerlies and the Gulf Streamwith sugar, rum, coffee, cotton, tobacco and gold. But with the Atlantic crossings came risks, and risk-taking was what underwriting and claims handling was all about.

In the next month, we will explore this further, with the rise of the ocean marine insurance business in London.